Bitcoin after the energy crash

jdoyle
By jdoyle on Thu, Feb 9, 2017 - 6:21pm

Hey, newbie here.  I think Bitcoin has so much potential and am really interested in buying some, but I worry about the stability of the electric grid, the internet, cellular communication, and the availability of replacement electronic devices; basically all of the things required to keep Bitcoin going in a low-energy post peak oil future.  It seems like a good buy to grow short term wealth though.  Any advice on dealing with these challenges?  Thanks.

33 Comments

skipr's picture
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everything after the energy crash

I'm not too concerned about BTCs after an energy crash.  If it happens it will kill everything digital, including the war on cash, bankster fraud, one world government (as described by daddy bush in the UN on 9/11/91, exactly 10 years before 911, what a coincidence), etc etc.  Maybe you should get some physical in-your-hands gold and silver as well as some cash and BTCs and put in under your "mattress."  Though it's pretty expensive, I have some "junk" silver (pre-1964 90% silver coins) since it's legal tender.  I think the price of BTCs and other altcoins will explode long before an energy crunch happens.

reflector's picture
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the wrong risks

hi jdoyle, and welcome.

but i think you may be worrying about the wrong risks.

your concerns about peak oil and finding replacement electronics are more longer-term issues. if your goal is short term speculation (next 1-3 years) like you said, these issues won't start to crop up yet.

if you are thinking longer term, i believe the internet is too valuable to people and to companies, for it to go away permanently, though there may be outages. satellite internet (such as hughes) might be a consideration here.

as far as electricity, you should have some backup sources, like solar power or wind, and a generator. using and sending bitcoin doesn't take a lot of electricity, only mining it does.

recognize that the bitcoin price is very volatile, bitcoin isn't a steady store of value, so don't speculate with more than you can afford to lose.

with all the currency chaos going on, such as war on cash, capital controls, bail ins and FATCA, BTC is becoming a refuge for wealth and can potentially go much higher, i believe it's worth the risk.

i was fortunate enough to pick up a bunch of BTC on the first dip in 2014, i was buying from $650 all the way down to $250. 

 

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Wish I would have known!

Nice reflector! I wish I had known about BTC back then. I can't complain though my $ cost average is about $800/BTC, what a difference getting in just a few months ago makes!

Jdoyle, where will you purchase from? Coinbase has been around for a while, charge 1.49% fee if you provide a bank account. I think it's around 5% for a credit card. I have found buying through them to be fairly straight forward and easy. 

 

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RE Bitcoin after the energy crash

Bitcoin would be fine without much energy. I would say - blockchains in general. If electricity gets more expensive and the transaction processors can't afford to 'mine' anymore - they will drop off the network and the bitcoin program self-adjusts the difficulty every two weeks so it will throttle back to account for it.

Right now, the computer power maintaining the network is equal to the top 500 supercomputers combined...times 125,000.  And growing exponentially. 

 

The real mind-trip is with Ethereum though - they are creating an entirely new internet\web structure called "Mesh Networking" which will require no servers, no Internet Service Providers, no DNS servers or the group that maintains them (ICANN)  which the USA just gave up. They dub it Web3 and they've got thousands of companies doing work on it. Amazing stuff and it will protect your identity like you won't believe. Distributed hash tables are the future - Think BitTorrent swarms of information scattered worldwide and unstoppable, uncensorable on millions of devices. 50 - 100 billion "Internet of things" devices that all communicate with each other to create a new web - and using a new data communication system to pass information so the internet infrastructure of today won't be needed.

Smart contracts will automate much of what accounts\lawyers \ stockbrokers \auditors and many other white collar jobs that will go the way of the horse buggy. Bitcoin may be the decentralized currency of the future, but ethereum is the decentralized internet \ and the principle law of the future.

If you are technically minded - check out youtube videos on Ethereum Swarm, "Interplanetary File System", "Web3" and you'll start to get the idea.  Oh, and invest in ethereum tokens. IMO they will be worth many times bitcoin's value. (And I love bitcoin)

I'm teaching a 10 part series on blockchains and video recording it - I might share if there is interest here.

 

 

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mrees999
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No more electrical grids with blockchain to the rescue

Ethereum blockchain is already being used to chain a solar-panel enabled smart-grid in a proof of concept Brooklyn neighborhood.

 

https://cointelegraph.com/news/blockchain-to-track-solar-power-production-ethereum-to-utilise-the-data

Efficient energy tracking and value transfer will reward energy conservation and penalize energy wastefulness. Neighbors might try to 'out-conserve' their neighbors to make a profit.  This aligns incentives correctly. It also removes the need for power transmission lines and our entire energy infrastructure as it was designed a century ago. 

Read more about Ethereum and you will discover why it's digital token "ETH" is the "oil" of the next generation. 

Here is a bit more to get you started:

https://medium.com/@ConsenSys/blockchain-community-solar-the-value-of-a-renewable-energy-reputation-ca9aed24cf9#.dxbryghoi

https://www.newscientist.com/article/2079334-blockchain-based-microgrid-gives-power-to-consumers-in-new-york/

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please do post a link
mrees999 wrote:

I'm teaching a 10 part series on blockchains and video recording it - I might share if there is interest here.

please do post a link, if you'd be so kind, i would check it out.

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Blockchain vid
reflector wrote:

please do post a link, if you'd be so kind, i would check it out.

 

+1

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video link

I would be interested as well.

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mrees999 video

That video sounds really interesting.  Maybe it will become part of the next Crash Course update.

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Mrees999 Video

I'd be interested too!

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MJB
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Alt coin Flight to Safety

Time to put on the Econ hat!

I know things are "OK" now, stock market near highs. Credit still fairly cheap and accessible. Pretty much the main stream agenda.

The new Alt-coin market has distracted me somewhat from the 'doom and gloom' economic situation/reality we will have to face one of these days.

The big question is when the flood gates do open and the selling starts in the stock and bond markets, will the same thing happen to the Alt coin market? It's my belief that BTC will be one of the safe heavens for people at are in the know. ETH may be another safe heaven. I do not know as much about DASH, Zcash and Monero but assume they will be at least considered. I say 'in the know' because of recent conversations over Easter. I have found there are many more people out there that don't know what BTC is than do. Even people that do, don't know how to access the market I.E. buy a BTC.

The problem I face with most of my alt coin portfolio is that it was purchased with BTC. This is important because each alt coin must rise in relation to BTC, not fiat dollars. If/when the USD starts to loose steam and the economy's true colors are allowed to shine I would think that BTC demand will be higher in relation to other Alt coins because of it's nature and mainstream description as digital gold. 

Is this something that others are thinking as well or is it full steam ahead into the crytpo unknown? 

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network partitions & bitcoin

I haven't specifically studied this issue, but I'm concerned that things will get funky for bitcoin in a long term network partition case.

Think for a minute what happens if we have an actual shooting war with a major country that lasts more than 30 minutes.  Do we imagine our respective internets will remain connected the way they are now?  I'm guessing we'll flip the big switch and the network partition will last as long as the war does.

If the Internet ever gets balkanized, then however many parts it dissolves into, that's how many different bitcoins we'll end up having.  Then if and when peace is declared and the two formerly isolated networks reconnect, that's when things will get really confusing.

Especially for the coin owners.

For me the real issue is intermittent balkanization.  If we lose connectivity to different countries for a day or so per week...and both we and they have their flock of bitcoin miners who are dutifully doing their duty and keeping their local copy of the blockchain alive, and people continue spending bitcoins in each country...what happens during the reconnect?

And lets say this happens weekly.

I'm imagining a world where things are substantially less reliable than they are today.

I'm sure the clever folks at bitcoin have talked about their solution to this issue.  I'd love to hear what it is.

It feels like a replicated database problem in an environment with really crappy networks.

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Bitcoin behavior on severed blockchains in world catastrophe

Ok, this will get a bit technical. This is all limited to my knowledge which isn’t at a core-level. As you surmised, severed undersea cables or other problems during a time of heavy conflict might cause problems for the internet for some time in certain areas. As almost everything in life requires the internet (phone systems, logistics, government functions etc) without an internet, food becomes currency within a few days when the stores are empty. But the internet was built to survive a nuclear war and was actually the reason it was constructed (ARPA net).

Various servers running nodes on bitcoin will continue to function as the governments themselves maintain nodes for security\monitoring and they’ve realized how useful and possibly pivotal for a variety of reasons that don’t necessarily involve its use as currency. Thinking through this – with my limited knowledge of how the complex logic all works I believe could do something like a hard fork. Each chain would be doing its own thing with the version of reality it knows about. In theory, this would be fine most of the time as people with private keys to spend bitcoin wouldn’t be able to reach the other versions of the chain. When reconnected, all the transactions would merge and the inputs and outputs should all align. But it might be possible if somebody had access to both sides of the chain – they might be able to take their wallet and spend those same coins again on the other chain if- the chains weren’t able to reconcile for some time.

These dynamics may play out very differently in the various other blockchain currencies like Ethereum – which have automatic difficulty adjustments or will work on a completely different consensus mechanism like ‘proof of stake’ which requires no fancy computing horsepower. It’s important to also remember that the information about transactions can also be transmitted over ham radio \ satellite, smoke signals, txt messaging, Morse code, and sending paper letters by birds – across communication gaps. The information contained in a transaction is very small. They just need to make it to the internet at some point to be recorded into the ledger.

In this scenario – other problems would exist as the computer difficulty for solving the mining challenge wouldn’t adjust correctly and might freeze the network for weeks or months as the self-correction steps might not be triggered because the difficulty might be too hard to overcome. Again, I have non-core team\programmer knowledge of the process so there may be safeguards against this. I suppose, in theory, you could have an “Eastern World Bitcoin” and a “Western World Bitcoin”. The value of each might adjust to the usefulness and value acting as immutable and censorship resistant accounting payment system each side assigns to it.

But as the record exists on thousands of computers and so many people find it useful around the world, that people might send USB drives or CD’s with perhaps a days’ worth of transactions that their side processed to the other side – in an effort to keep them somewhat in sync. Especially if all other forms of cross-border banking are down, and (more likely) value of the national currencies go to zero as is common in war.

As bitcoin is neutral, my belief is that it would become the de facto standard as it would still be able to do its main function of acting as all of the other functions of money that it is already recognized. This scenario assumes a lot as anybody could likely imagine variations of this doomsday in a million different ways, to the point where there may be no humanity left to care. To compare it to other systems that might survive or fail in the same scenario – regular banking systems will likely collapse as fiat money is created and destroyed through debt. In the chaos, paper debt becomes meaningless.

Hard objects like food (and perhaps gold and silver) might return to be natural currencies for local groups. Gold and silver are great if you conduct business with arm’s length without the need of a third-party. But transferring value long distances might come down to a blockchain currency – or nothing in times of little to no trust. If there is trade needed between governments or borders that recognize the need for a neutral currency that works at the speed of light and acts an immutable accounting system.

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Before or after..

Does this scenario happen before, after or during the financial collapse? It is an important question because that is the premise the original question was asked.. 

Some out there believe that a hot war will start before TPTB collapse the financial system in order to cover their misdeeds.

Others think it will be the financial collapse that get us into the hot war.

Still others think a collapse is possible without a hot war happening at all.

It is my understanding that a BTC cannot be replicated or altered. I cannot tell if one has that's why I pay a miner a small fee. I trust that they can (and do) verify the transaction. Maybe there would be several hard forks, in which case when peace finally happened I would have one of each as long as they use (build on) BTC. If the entire internet system goes down I agree with Mrees, it will be a not nice place, not a world where I will care about BTC in the slightest.

The question remains, if the system doesn't go down, will BTC be a safe haven? Will it rise in relation to alt coins or will the 'good' alt coins continue to rise in relation to BTC. 

 

 

 

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immutable accounting

For the non-technical people (i.e. everyone but you, me, and a couple of others here), bitcoin is "immutable" only because a majority of the servers that are able to talk to each other agree on the answer.

Partition Case

A "network partition" involves one group of servers (the "Russian" servers) and another (the "American" servers) that can no longer communicate with each other for whatever reason.  Both networks operate fine, they just cannot see one another.

American servers can talk to each other, and they all agree "this is the right blockchain".  So do the Russian servers.    But they are agreeing on different blockchains.  Each server group sees different transactions.

Right now bitcoin works because the whole world is on the internet, and everyone can communicate with everyone else in real time.

A war would call that into question.  If we were fighting China, would we want to remain connected with them as we are now?  Or would we implement changes in our border routers that would simply refuse to pass packets with Chinese addresses?

https://blogs.akamai.com/2016/10/2-ways-an-entire-country-can-lose-access-to-the-internet-and-why-the-us-is-resistant.html

As a "network guy" in my past life, I had to deal with partitions as an error case.  Its a very thorny issue.

I'm guessing that bitcoin would have real problems in any extended partition, especially once people figured out they could spend their bitcoins on both sides of the partition, which they would rapidly twig to.

Even in a "mostly disconnected" state, clever people could figure out ways to send low volume messages - large enough to buy things, but not big enough to swap blockchains on a regular basis.  A Chinese kid living in the US could send his bitcoins to his parents living in China in an encrypted 500 byte message.  Both could easily spend them.  Clever people will always find a way.

And in a real "power-down" situation, the network would fragment in unpredictable ways, and for varying amounts of time.

I like to say that if some error case hasn't happened yet, then we don't really know if the system can handle it.  To use a recent example: if water has never poured over the emergency spillway before, we have no real way of knowing what the impact will be to the dam; we may THINK we know (and the enthusiastic dam engineers that expect the best possible outcome will tell you its no problem at all), but reality could well be different.

Power Down Case

Ultimately, in a real power-down world, the need for long distance arms-length transactions will drop off substantially, simply because the ability to actually transport stuff that far will drop off too.   Many more transactions will be face to face.  As a result, the "value" of bitcoin (as a store of value) would probably also drop off.  If the only "bitcoin server" you could have access to will be located in your small town, or in your group of neighboring small towns that have managed to keep a subset of "the internet" running by hook or crook, how often would you use bitcoin?

Limits to Growth - Blockchain Size

Not to mention the number of nodes able to store the entire blockchain will fall over time.  Bitcoin works because everyone can see one another, there is enough network capacity to routinely swap blockchains, and each full node has enough space to store the blockchain database.  Just for fun, I'm installing a component right now that requires me to download the full blockchain.  So far, its taken me a day, and it will cost about 80 GB of disk.  It also seems very memory-intensive.  My old 4 GB of RAM server doesn't seem very happy about the process.

And that's today, before anyone really uses bitcoin.

Here's a chart that shows the size of the blockchain over time.  What does this chart look like to you?

https://blockchain.info/charts/blocks-size?timespan=all

Let's see.  Blockchain has doubled in size every year.  That makes blockchain size an exponential function!

How big will the block chain be?  Well, if bitcoin becomes VISA, that's 2k transactions per second.  At (perhaps) 600 bytes per transaction: 600 x 2000 x 60 x 24 = 1.7 GB/day, or 620 GB per year.  That's the growth rate, not the total size.  Half a terabyte per year.  And you need about 5x that much disk to store the database.

How many transactions per second does bitcoin do now?  About 3 per second.

https://blockchain.info/charts/transactions-per-second?timespan=1year&daysAverageString=7

Presumably they have a fix for this.  They certainly know about it.

The very thing that provides "virtue" (an immutable transaction list that everyone agrees upon) is also an essential limit to growth, mainly because every server must have the entire transaction list stored locally.

Right.  I'm sure I've lost everyone.

Bitcoin totally reminds me of how the bankers talk about derivatives.  "They'll all net out, don't worry, our net exposure is actually pretty small."  Until the banking crisis comes and the system has a problem it sees only rarely, if ever.  As long as the global internet continues to function properly, bitcoin will be ok - although the limits to growth are real because of blockchain size.  (Maybe they have a fix; blockchain archives, etc; I'm not plugged in, so I don't know what they've talked about).

Bitcoin as a safe haven/store of value?  Gad.  No.  Bitcoin would not survive "a world made by hand" - or even a world made mostly by hand.  It has a critical dependency on global internet continuous connectivity.

Can you imagine a situation where we don't have continuous global realtime network inter-connectivity and civilization still manages to survive?  I.e. a world where we often can't ping a server in Bangladesh, but we can still get food at the grocery store?  Bitcoin will work poorly in that world.  It will lose value in that world as a result.  Bitcoin assumes an ever-growing world of connectivity, disk space, network bandwidth, etc.  If that doesn't turn out to be our future, bitcoin's value will plummet.

My suggestion: keep enough bitcoin around to do your transactions, and as a speculation, but don't use it as safe haven currency.  I treat bitcoin the same way I treat derivatives: fun to use when everything works well.  I routinely write puts, but I don't treat them as a store of value.

Water.  Emergency spillway.  All will be well.  :)

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Bitcoin is a derivative

Let me explain what I mean by using some examples.

Pensions are dependent on (a derivative of) a rising equity market, and indirectly, global growth.  If the national or world economy stops growing in real terms for long enough, eventually, the pensions will fail too.  They just have to.

Your savings account, if its in a major TBTF bank, is dependent on (a derivative of) financial system stability - on no other major TBTF banker going bankrupt because of the massive derivative books they have.  If someone big (DB?) goes under, other TBTF bank balance sheets will blow up in unpredictable ways and as a result the banking system will grind to a halt as trust vanishes, and quite possibly your savings account along with it.  At minimum, you'll be unable to access your savings account in the same free and easy way you did when everything was going smoothly.

Globalization is dependent on (a derivative of) cheap energy, a state of relative world peace, and reliable transport.  As energy gets more expensive and/or safe transport of goods becomes more dodgy or war becomes more common, manufacturing something far away becomes a lot less interesting.

The price of your home is dependent on (a derivative of) the vast amount of housing debt already in place.  If total housing debt contracts, your home price will fall.

The Internet (continuous realtime global network interconnectivity) is dependent on (a derivative of) reliable power generation, our current tech manufacturing infrastructure, a constant stream of bug fixes for zero day bugs, and relative world peace.

Bitcoin is dependent on (a derivative of) the Internet, where the entire world is assumed to be connected most of the time.  Its also a derivative of ever-increasing disk space and computing power.  Lose the internet - or even just segment it and make it substantially less reliable - and bitcoin becomes much less interesting.  Bitcoin is also a derivative of a stable banking system.  From my observation, few bitcoin transactions involve handing over cash to someone.  Most of them involve some sort of bank transfer to fund them.  No bank transfer = no bitcoin.  Lose banking, you lose bitcoin too.

So I have a home, a savings account, and my job relies on the internet functioning.  Those are all derivatives of one sort or another.  I also own some bitcoin - although not very much.  I like to think I'm clear-eyed about the risks I'm taking with each position I have.

As long as you know what something depends on (i.e. is a derivative of), you know what your risks are.

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1-2 eggs in the basket, not all

I appreciate your post Dave and for taking the time to sound the alarm bell of putting all of ones eggs in one basket. I am not/was not advocating this so I'm sorry if you took it that way.

You never gave any input on the original question though, just made up a future possible problem and said BTC will be worthless given this future you see happening IE a war and internet connections with foreign countries going down. Again, I appreciate you sounding the alarm and giving your theory on how 'internet down' will play in relation to BTC and its blockchain.

 

Well shoot, call me crazy but I don't see that happening. May I also point out BTCs recent success or what about ETHs performance? I read many BTC posts here at PP and did my own research. That portion of my portfolio has outperformed the stock market, the bond market, the USD (cash), real estate price appreciation, gold and silver. It's really hard to argue with results especially when you take profits and play with house money. There was a past discussion in which you advocated staying away from BTC, I am glad I did not listen in this particular instance. If something does go wrong and all BTCs are lost or worthless? Well, I won't be alone and it will have been one heck of a ride.

 

It is my contention that BTC will be around for a long time, continuing to appreciate in USD terms. I am just wondering how much to diversify in the alt coin space.

 

 

 

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more bitcoin

MJB-

If I came across as sounding an alarm bell that you should flee bitcoin, that was not my intent.

I've seen a lot of commentary, not by you, that bitcoin is a whole lot of things that it really isn't.  It won't be a safe haven in tough times.  Its not the new world currency.  It's not anonymous.  (Its hard for a public ledger to be anonymous).  And it is not going to replace banking.  In fact, bitcoin is quite dependent on a properly functioning banking system to support its current price.

How would you turn your bitcoin into "a way to pay for your food, rent, and credit card bills" without the banking system?  Simply from a pragmatic viewpoint, the vast majority of the offerings on localbitcoins.com talk about bank transfers.  Without the ability to ACH or wire money to your coinbase account, how would you fund your purchases - or cash out of your sales?

Bitcoin is not rising in price because of some innate intrinsic merit that everyone just happens to see now.  Bitcoin is rising because money is flowing in.  No bank transfers = no money flows in = price of bitcoin will drop.

Once you know what it is, and what it isn't, then you can decide for yourself if you want to buy or sell.

If we have a banking crisis, or really any serious deflationary event, based on my analysis of how things work, most likely the bids under bitcoin will vanish.  Certainly the money flows will reverse.  People will opt to pay off their home mortgage/rent vs buying bitcoin.  Bitcoin is a "luxury speculation", and interest in stuff that tends to vanish when people are faced with the prospect of losing their homes, paying for food, etc.

However, if money printing continues, and our tech innovation pace continues, then bitcoin will probably do quite well.  In some sense, I see bitcoin as a call option on the status quo.  Going long google will get you return X and long bitcoin will get you 50X.

Of course, that works in reverse too.

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Deliciously Subversive Dave!

Your intent to subvert anything not of our current banking system comes through loud and clear Dave!

Dave said in starting,

If I came across as sounding an alarm bell that you should flee bitcoin, that was not my intent.

Followed then by several paragraphs of the faintest of praise for Bitcoin;

It won't be a safe haven in tough times.  Its not the new world currency.

Really?  and Really?  Boy it's a darn good thing we have you here Dave to settle these questions with such absolute answers!  No need to think for yourself with Dave here..

Bitcoin is not rising in price because of some innate intrinsic merit that everyone just happens to see now.  Bitcoin is rising because money is flowing in.  No bank transfers = no money flows in = price of bitcoin will drop.

Let's unpack this last statement;  The fact is the price of Bitcoin in dollars, or other currencies, has risen dramatically exactly because of it's innate, intrinsic merit as a new form of tradable, "value".. or currency.  The blockchain is useful, and the entire concept of Bitcoin is elegant.  Yes, we think of Bitcoin's value today in dollars because that is our current monetary paradigm.. but that does not mean we cannot, or will not in the future, think of it, or other cryptocurrencies like it, in other terms.  The entire debt-based fiat regime could fail and Bitcoin would still have it's merits.  I am not going to get into the whole discussion of parts of the internet shutting down, etc... but lets just say this;  Debt based fiat currencies Always, By Design, Go to Zero.... Bitcoin will not.. and it is in fact designed to have high scarcity integrity, and to be generally (though not always) deflationary relative to a functioning debt-based fiat currency.       

At the end, Dave always has his plausible deniability clause;

However, if money printing continues, and our tech innovation pace continues, then bitcoin will probably do quite well.  In some sense, I see bitcoin as a call option on the status quo.  Going long google will get you return X and long bitcoin will get you 50X.

See!  Dave does like Bitcoin!  I think?  

We have a dystopic monetary future ahead, where money printing will continue, but we, the regular people, won't be able to get much of it (see India).  We will lose the freedom of cash.  This is uncharted territory.  Get yourself Gold, Silver, some BTC, and some ETH now while you can, and mind how you store these things.  Store some physical Gold and Silver outside of your country, outside of the banking system.  If you don't establish this now even though you have the means, you will regret it.     

 

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yes

Yes Dave!

So a few things to think about. The money really hasn't started flowing into crypto currency... yet. Several discussions I had over the Easter weekend opened my eyes as to how far ahead of the curve we here at PP are in regards to BTC.

The current banking system and the price of BTC is a very interesting topic of discussion, almost like one cannot survive without the other. I would point out though that if two individuals can use BTC as a medium of exchange without a bank as long as they have BTC to begin with.

Money really hasn't been flowing into precious metals either from what I can tell, at least in the circles I run in. There is more interest in them though because there isn't much of a learning curve involved and lower perceived risk.

 

 

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agree

The fact is the price of Bitcoin in dollars, or other currencies, has risen dramatically exactly because of it's innate, intrinsic merit as a new form of tradable, "value".. or currency.  The blockchain is useful, and the entire concept of Bitcoin is elegant.  Yes, we think of Bitcoin's value today in dollars because that is our current monetary paradigm.. but that does not mean we cannot, or will not in the future, think of it, or other cryptocurrencies like it, in other terms.  The entire debt-based fiat regime could fail and Bitcoin would still have it's merits.  I am not going to get into the whole discussion of parts of the internet shutting down, etc... but lets just say this;  Debt based fiat currencies Always, By Design, Go to Zero.... Bitcoin will not.. and it is in fact designed to have high scarcity integrity, and to be generally (though not always) deflationary relative to a functioning debt-based fiat currency.  

...

We have a dystopic monetary future ahead, where money printing will continue, but we, the regular people, won't be able to get much of it (see India).  We will lose the freedom of cash.  This is uncharted territory.  Get yourself Gold, Silver, some BTC, and some ETH now while you can, and mind how you store these things.  Store some physical Gold and Silver outside of your country, outside of the banking system.  If you don't establish this now even though you have the means, you will regret it.     

I see this too Jim... At what point would you recommend storing outside of the county? When you get 1,000+ AG and 100+ AU? Aren't there minimums involved in vaulting? I am fairly uneducated on the topic.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
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Posts: 2385
MJB..

At what point would you recommend storing outside of the county? When you get 1,000+ AG and 100+ AU? Aren't there minimums involved in vaulting? I am fairly uneducated on the topic.

Yeah, I think if you have a few or 10 ounces of Gold.. hold them at home in a safe place.  If you have a lot more than that it's time to start thinking about asset diversification in geopolitical terms.  Yes, there will be a fee.. but I gladly pay it.  The beauty of this for a US citizen, today, is that it's perfectly legal via IRS rules to store things of value, like paintings, metals, or jewelry, overseas in a nonfinancial institution or nonfinancial account.. and it does not have any reporting requirements.

Anyone interested in the solution I use can PM me.. otherwise do your own due diligence on options in safe haven spots like Hong Kong, Switzerland, or Singapore.  Some options like Goldmoney may be considered financial accounts via IRS rules.. so read the fine print as you research options.         

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
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Posts: 377
Bitcoin as a derivative of Energy

Evening all,

I think DaveF's point was how Bitcoin functions over a longer time horizon.

Instead of running the risk of speaking for another here are my 2 concerns for Bitcoin over the long term (i.e. 20+ years).

1) Energy Consumption

2) Complexity

Here is a an article which explains the 256 Secure Hash Algorithm

Bitcoin mining is a key part of the security of the Bitcoin system. The idea is that Bitcoin miners group a bunch of Bitcoin transactions into a block, then repeatedly perform a cryptographic operation called hashing zillions of times until someone finds a special extremely rare hash value. At this point, the block has been mined and becomes part of the Bitcoin block chain. The hashing task itself doesn't accomplish anything useful in itself, but because finding a successful block is so difficult, it ensures that no individual has the resources to take over the Bitcoin system. For more details on mining, see my Bitcoin mining article.

A cryptographic hash function takes a block of input data and creates a smaller, unpredictable output. The hash function is designed so there's no "short cut" to get the desired output - you just have to keep hashing blocks until you find one by brute force that works. For Bitcoin, the hash function is a function called SHA-256. To provide additional security, Bitcoin applies the SHA-256 function twice, a process known as double-SHA-256.

In Bitcoin, a successful hash is one that starts with enough zeros.[1] Just as it is rare to find a phone number or license plate ending in multiple zeros, it is rare to find a hash starting with multiple zeros. But Bitcoin is exponentially harder. Currently, a successful hash must start with approximately 17 zeros, so only one out of 1.4x1020 hashes will be successful. In other words, finding a successful hash is harder than finding a particular grain of sand out of all the grains of sand on Earth.

[bold italic emphasis is mine]

So, onto my 2 points;

1) Energy Consumption

Two articles - the first has this

At this rate, the bitcoin network runs at 342934450 watts, which equates to around 343 megawatts. Calculations based on  EIA data reveal that the average US household consumes about 1.2 kilowatts of power, meaning that 343 megawatts would be enough to power 285,833 US homes at the time of writing (May 2015).

That’s quite a lot of energy - about a third of the homes in San Jose. And our 1 watt per Gigahash/second figure is pretty efficient. There will be a large number of residential users who will be taking more power to run their miners.So it's likely that this is a conservative estimate.

The second has this

The results show that in an optimistic scenario, the increase in electricity consumption of the bitcoin network compared to now is not shocking, from around 350 MW to around 417 MW, but still on the order of one small power station. If things play out a little less favorably, however, the bitcoin network may draw over 14 Gigawatts of electricity by 2020, equivalent to the total power generation capacity of a small country, like Denmark for example.

This is by no means a comprehensive analysis and these numbers should be taken with a pinch of salt, but the conclusion is an important one: If the network of bitcoin miners keeps expanding the way it has done, the increased efficiency of mining devices is most likely offset, leaving us anywhere between a slight growth or an explosion of the total energy consumption.

The 'hope' of Bitcoin is that mining platforms become more efficient to offset its energy costs - which leads into my second point; complexity

2) Complexity

Given our impending resource contraction do we think that complexity within our society will increase or decrease? Without cheap energy how will we improve the efficiency of Bitcoin mining platforms? Will other things not take precendence - e.g. keeping the lights on in hospitals?

I really like the concept of Bitcoin but I don't see how it offers any long term value - hence why I don't own any.

All the best,

Luke

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5412
does dave like bitcoin?

Well Jim, since you asked...

I've actually used it for transactions - I've studied how it's implemented, I have an extensive background in architecting software systems that use networks.  I'm not actively writing code for the system, so I'm not qualified to talk about details, just big picture design issues.

I have issues with its design.  I'm not so keen on having to download the entire blockchain in order to be secure.  Blockchain grows exponentially.  Given my PP experience, that seems bad.

You really think it was a great design decision to drag the entire blockchain onto each node throughout eternity?  That part seems like a hack to me.  Every one-penny transaction, stored for posterity, there in the blockchain.  Any new node that starts up gets to load every single one of those into its database.  Forever.

This is your idea of elegant?  Seems more like the designer had no idea where to store it in the architecture he designed.  Perhaps he was a packrat.  Never could throw anything away.  One could imagine archival or aging the transactions might be a useful feature to have.  Only archival sites (another kind of "miner", perhaps) would be required to store the old transaction.  But no.  Every transaction through all of history must be downloaded and processed by each new node in order to play the bitcoin game.  That's no big deal during year 1.  Maybe ok at year 5.  At year 15, its just stupid.

Exponential functions.  We don't like them here for a good reason.  Bitcoin has one right at its core.  Sorry to bash the sainted designer, but he needed to watch that Al Bartlett lecture we all know and love.

The utility is a different matter.  I've used it for transactions - basically sending cash from one part of the world to another, kind of like an international ACH or wire.  The near-realtime aspect is nifty.  (The public nature of the blockchain - a bit less nifty.  As a "feature", I'd prefer anonymity.  Actual cash feels safer to me overall.)  The current spread?  Its expensive, if you aren't using an account somewhere.  Making it happen was fairly straightforward.  Sorting out what my vulnerabilities were was stressful, since I don't trust my laptop to hold anything too valuable for very long.  Special-purpose hardware fixes that - I don't have one, but if I used it regularly, I'd get one.

The security issues?  They're terrifying.  It really does feel just like cash, except its invisible, and someone can hack into your box and swipe your cash in milliseconds, and you won't know until you go check.  I'm not sure we're used to that at a visceral level.  Its neither a bug nor a feature.  Its just is what it is.  I don't have any problem with the design on that score, its just scary.  I'd probably feel better if I had the extra hardware.

So I'd rate it as good functionality, a bit scary to use (caveat emptor, on steroids), with a design that gets progressively more cumbersome with time.

Monetarily, bitcoin operates as a foreign currency, kind of the same way that gold does.  I pay all my bills (including my debts and taxes) in dollars, so bitcoin will always be forex unless and until it replaces actual currency in daily use.  You can assess for yourself when that's likely to happen.

I agree with MJB that it remains early days.

If I had a business and accepted bitcoin, I'd sweep my bitcoin wallet as often as possible into my local currency, to avoid taking bitcoin price risk.  If my liabilities are in my local currency, this is just something I must do, or else I risk not being able to pay my electric bill (or my payroll) because of a sudden dip in the price of bitcoin at an inopportune moment.

Given this reality - only speculators "hold" bitcoin for any substantial amount of time.

Like every other financial instrument, bitcoin's price rises and falls depending on how much money is flowing in, or out in aggregate.  Currently, the primary vehicle for delivering money flow into bitcoin is the banking system.  Whether you like it or not, that's just reality.  Remove the banking system money flows, and who will buy bitcoin?  Cash buyers?  That's like removing home loan-funded buyers from the real estate market.  When all you have are cash buyers, price drops dramatically.  Unless you're in vancouver.

Until a large number of people accept bitcoin for everything, bitcoin will feel like forex, and the banking system and convertibility to local currencies will be integral to retaining bitcoin's value, because merchants need to have their asset and liability currencies match.  They are in the business of selling stuff, not in the business of absorbing forex risk on top of business risk.

Lastly, I agree with Luke's point - or maybe he agrees with mine.  If we're expecting a world of "more", then bitcoin is the place to be.  If we're expecting a world made by hand, bitcoin will not survive.  Something in between?  As long as the internet functions well, and the banking system remains intact, bitcoin should be fine, although I'm concerned the bitcoin specs will drop it during a deflation.

Unfortunately, since we haven't seen how bitcoin operates during a crash, we really have no clue how it will act.  It might be a safe haven.  My guess is, it will act like a dotcom stock.  But none of us really know for sure.  That's a known unknown.

It really all depends on what sort of trade you are looking for.  As I said before, I see it as a call option on the status quo.

I also get the sense it could be replaced by something else with a better design.

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 423
Bitcoin energy and the concept of tokenzied trust.

Luke, once way to think of bitcoin energy:

 

How much energy does it take to defend our country?  The nuclear power plants to make nukes, the army\airforce etc.  The cyber command, all the factories to build the ships \ planes. The money used to train, and equipment soldiers and generals. This list could go on all day.

 

Is all the energy to do all this wasted?

 

If we didn’t do all of this, how long would the country hold together against enemy forces that would want to take our land, supplies, families, etc.

 

Is defending the country – and the associated costs wasted?

 

Now, how about the worlds’ only independent network of computers used to maintain the ‘trust machine’ that is widely considered the most protected on earth? Giving the fact that it only can handle a tiny amount of transactions and serve a tiny portion of mankind – it might be thought of as wasteful.  But as an investment in a future where nobody trusts anybody – having a neutral source that is replicated all over the world using a consensus method has to earn trust and respect and that takes time – and constant hack attempts from the very best governments and hackers in the world battle testing it every day.

Currently, the combined computing power of the bitcoin network is greater than 63,000 times the next 500 supercomputers of the world- combined.

 

 

The power estimated to break it – would have to match the computing power of the entire network for at least 10 minutes, plus one more to get a majority vote. All of this just to be able to falsify the record for 10 minutes for bitcoin it already owns. It can’t go back in history to change the encrypted records from the previous block – unless it can redo the mining of the previous block as well. But all of the computing power the nation stage might muster – would require the equivalent amount of electricity to power them. This means they would have to come up with the power requirements of a small country to mount the attack at a moment’s notice, there likely isn’t that much power just lying around waiting to be used on a massive worldwide attack. – And do it so secretly-  that the rest of the world network doesn’t notice.

 

But it has to do the previous block of encrypted transactions \ and the current block at the same time – before the rest of the combined world races to solve the latest block. Therefore an attacking nation would need at least three-times the entire bitcoin network, and the electric power of three small country (or one medium size country) to do this before the rest of the world recognizes it. – That’s just to capture 20 minutes of blocks – only affecting coins that they already own.

 

 

Going back an hour – would require the about the national electrical output of the entire US. Going back about two days worth of blocks would require the entire electrical output on earth (and likely every computer on earth as well. Continues to grow exponential from there.  Two weeks would require the energy output of the sun.

 

So, when somebody records a record\transaction – hashed file of any kind – it is immutable. For the first time in history, we have an immutable single source of truth visible worldwide. It is protected by the laws of physics. Laws of thermodynamics. 

 

How much is tokenized trust worth?

PaulJam's picture
PaulJam
Status: Bronze Member (Offline)
Joined: Dec 4 2016
Posts: 69
great discussion

A quick note of thanks and appreciation to mrees and davefairfax for this discussion - my cryptocurrency education started when I joined PP a few months ago - I now have my toe in the water, and really appreciate all the perspectives, caveats, and how-to information that are here on PP regardng cryptos.  It has been a most valuable and unexpected learning curve for me.

skipr's picture
skipr
Status: Silver Member (Offline)
Joined: Jan 9 2016
Posts: 129
power consumption

I bet the power consumed by all of those porn sites would dwarf what's used by BTC miners.  What would really be funny is if it would also dwarf the DOD's consumption.

Storing the entire blockchain on a single PC is a big problem?  Give me a break.  I have a cheap PC with a 5TB RAID5 array.  A 60GB blockchain is miniscule.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5412
brute force attacks

I get that a brute force attack is hard.

If I wanted to execute a Bitcoin Bank Robbery, I wouldn't use the brute force method.   I'd just deliberately segment the net, and that would allow me to spend my bitcoin twice, once on either side of the segment.  Or if I was really clever, I'd do this to a number of countries at the same time (nations with network topologies where I could sever their net access at the one critical point), and spend the money 10 times.  Since I'd control the timing of the segmentation, I'd be ready with my irreversible transactions which will be duly validated by all the different segments.  It would all be done in 20 minutes.

This attack would happen too quickly for anyone to realize what has gone on - and for the price of bitcoin on both sides of the segment to adjust.  There would be absolute chaos when the segments rejoined, once everyone figured out what had happened.  Most likely I could make an even larger chunk of money shorting bitcoin prior to that event - via selling futures and buying put options.  http://cryptorials.io/how-to-short-bitcoin-5-ways-to-profit-from-a-falling-btc-price/

It would be like the 9/11 hijackers shorting the airline stocks.  Which they supposedly didn't do, but the concept remains valid.

Likewise, I get your generalized concept of tokenized trust, but if you really tried applying the concept to things other than money, "hard forks" can no longer solve the segmentation problem.

What does it mean to have that generic "immutable transaction" validly appear in two different blockchains with two different counterparties?  Two people could end up owning Trump Tower?

I have to say, I do like using bitcoin, I like the functionality it provides.  I just don't like holding it as a speculation.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5412
storing blockchains

skipr-

Once bitcoin becomes VISA, blockchain grows by 1.5GB per day.  You not only have to store it, you also have to download it.  Once the blockchain is 10 TB, will you still be ok?  It never stops growing.  Ever.

And from what I can tell, the storage requirement by the database is 5x the size of the actual blockchain itself.

Here's a good discussion on the subject:  https://www.quora.com/Why-isnt-the-size-of-the-blockchain-a-serious-problem-for-Bitcoin

My guess is, it will eventually be replaced by something with a better design.

I don't think the designer planned for its current level of success.

Still, I am reminded of something that an old manager of mine would always tell me, when I complained about such things, "That's a problem that only successful companies have to deal with."

 

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 423
Segment network attack probably won't work - because:

A few problems with your segmentation attack, that I can see on the surface. Likely many more that I don’t know on a deeper level.

 The network match tallies the entire processing power of the network so it can make the throttle adjustments for the difficulty. Basically, adding or subtracting the required leading zeros from the brute force encryption game by changing the nonce value.

 

IF you segment the network, you have the difficult still set to look for ‘for example’ 16 leading  zeros.  Right now the network must make 5.6 quintillion guesses per second to come up with the hash of the entire block of transactions – plus a random nonce value, and keep guessing until the first leading characters happened to be zeros.  Try flipping a coin 16 time and have it come up all heads. So on average, it must guess 5.6 quintillion times per second for 10 minutes.  That is 5.6 quintillion X 600.

Problem one- you now have four times slower network and confirmation times.

Say you split the network into four pieces… You still have to do 5.6 quintillion x 60 – but now you only have ¼ the computers required to make that calculation. Your time ‘mathematically’ would be now 40 minutes to write those transactions to the block. The consensus is suggested to be to wait for another six confirmation blocks – so it would be something around 40 x 6 – or 240 minutes. If people were continuing to use it – the memory pool is only one megabyte and you can only fit about 2,000 transactions in the pool before they go into transaction backlog. One meg will be full in five to 10 minutes – the 75% of transactions fail.

Problem 2

How to use spend on two different chains at the same time? How and when would you know you were spending on one chain and not the other? Good clean breakpoints that you can predict? It’s not a border or piece of land you can hop from one to the other. There are even repeaters in space. Nodes over radio  etc. Finding an even break that stays broken, while miners still continue. Is a bit far-fetched.

 

Problem 3

This wouldn’t be a secret as miners on all 4 segments would then be slowed the same way and it’s obvious there’s a problem. Word would get out that a fork is possible and it might be possible to loose your bitcoin until it was up and working again – so it’s doubtful anybody would be selling anything in exchange for your bitcoin if there is a problem with a double spend. So won’t likely have a market to sell or trade during a network outage.

 

Keep thinking though – See if you can find a way that the Russian. US, Chinese – and the largest hacking groups gave up on in 2013.

Somebody could manipulate the markets as they do with gold\silver\oil by using scare tactics.

Not holding bitcoin for an investment is probably your worst mistake.

Highest ranking currency again us dollar in:

2011

2012

2013

2015

2016

2017

Was best overall investment of all asset classes in each of these years as well.

So much for the magical internet money.

Still laughing?

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 423
Segment network attack probably won't work - because:

A few problems with your segmentation attack, that I can see on the surface. Likely many more that I don’t know on a deeper level.

 The network match tallies the entire processing power of the network so it can make the throttle adjustments for the difficulty. Basically, adding or subtracting the required leading zeros from the brute force encryption game by changing the nonce value.

 

IF you segment the network, you have the difficult still set to look for ‘for example’ 16 leading  zeros.  Right now the network must make 5.6 quintillion guesses per second to come up with the hash of the entire block of transactions – plus a random nonce value, and keep guessing until the first leading characters happened to be zeros.  Try flipping a coin 16 time and have it come up all heads. So on average, it must guess 5.6 quintillion times per second for 10 minutes.  That is 5.6 quintillion X 600.

Problem one- you now have four times slower network and confirmation times.

Say you split the network into four pieces… You still have to do 5.6 quintillion x 60 – but now you only have ¼ the computers required to make that calculation. Your time ‘mathematically’ would be now 40 minutes to write those transactions to the block. The consensus is suggested to be to wait for another six confirmation blocks – so it would be something around 40 x 6 – or 240 minutes. If people were continuing to use it – the memory pool is only one megabyte and you can only fit about 2,000 transactions in the pool before they go into transaction backlog. One meg will be full in five to 10 minutes – the 75% of transactions fail.

Problem 2

How to use spend on two different chains at the same time? How and when would you know you were spending on one chain and not the other? Good clean breakpoints that you can predict? It’s not a border or piece of land you can hop from one to the other. There are even repeaters in space. Nodes over radio  etc. Finding an even break that stays broken, while miners still continue. Is a bit far-fetched.

 

Problem 3

This wouldn’t be a secret as miners on all 4 segments would then be slowed the same way and it’s obvious there’s a problem. Word would get out that a fork is possible and it might be possible to loose your bitcoin until it was up and working again – so it’s doubtful anybody would be selling anything in exchange for your bitcoin if there is a problem with a double spend. So won’t likely have a market to sell or trade during a network outage.

 

Keep thinking though – See if you can find a way that the Russian. US, Chinese – and the largest hacking groups gave up on in 2013.

Somebody could manipulate the markets as they do with gold\silver\oil by using scare tactics.

Not holding bitcoin for an investment is probably your worst mistake.

Highest ranking currency again us dollar in:

2011

2012

2013

2015

2016

2017

Was best overall investment of all asset classes in each of these years as well.

So much for the magical internet money.

Still laughing?

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 423
Storage no longer a problem - Introducing the lighting network

One of the biggest advances to the bitcoin network is the advancement of the lighting network. This invention handles almost all transactions 'off-chain' through another payment rail that is pegged to bitcoin through a staked peer arrangement. Several transactions can feed through a channel where they have finalized quirky and final settlement and the end result only is sent back to the main chain.

This is said to handle load like Visa, instant and free. no chain bloat. THis makes the previous argument moot.

 

 

 

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 423
Storage no longer a problem - Introducing the lighting network

One of the biggest advances to the bitcoin network is the advancement of the lighting network. This invention handles almost all transactions 'off-chain' through another payment rail that is pegged to bitcoin through a staked peer arrangement. Several transactions can feed through a channel where they have finalized quirky and final settlement and the end result only is sent back to the main chain.

This is said to handle load like Visa, instant and free. no chain bloat. THis makes the previous argument moot.

 

 

 

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